The Christmas bonus – the costs and considerations for employers
Christmas parties have been cancelled but employers who can afford to are still marking the festive season by giving employees a Christmas bonus.
The practice of paying bonuses as a reward to staff for their contribution to the success of the business during the previous year, is a tradition that is very much welcomed by employees.
“Many employers, where they can, are opting to offer a gift or bonus to employees to celebrate the holiday season and recognise their contribution instead of the traditional Christmas parties and events, in light of Covid restrictions,” said Maeve McElwee, Ibec Director of Employer Relations.
Caroline Reidy, Managing Director of the HR Suite said a Christmas bonus is a “super way” to acknowledge people’s efforts. “Employers are anxious to give them a token of appreciation and acknowledge many have worked in very challenging circumstances this year.”
It has been a difficult year for many businesses, however, and not all employers are in a position to give staff something extra this year.
And there is plenty for firms to consider before paying Christmas bonuses.
If a company paid staff a bonus in 2020, are they obliged to pay a bonus in 2021?
Patrick Walshe, Partner and Employment Law expert at Philip Lee law firm, said the principal precaution that an employer needs to take is to make it clear that the payment of a bonus is purely discretionary – this is a simple step to guard against any suggestion that employees have the expectation of a guaranteed bonus.
“A prudent employer will have already dealt with this issue in contracts of employment or staff handbooks,” Mr Walshe said.
“There is never any harm in referring to the fact that bonuses may be paid but making it clear that employees have no automatic entitlement to one.”
Does a business have to pay a Christmas bonus to all staff?
No, but that’s not in keeping with the spirit of Christmas and no employer wants to be considered a modern-day Ebenezer Scrooge.
A Christmas bonus scheme that’s selective can give rise to disaffection in the workplace, or as Mr Walshe puts it, “a bonus scheme that is only available to senior members of staff is likely to engender an unfestive spirit in the poor unfortunates who are lower down the totem pole.”
If a Christmas bonus scheme is genuinely discretionary, an employer is entitled to choose who receives one, but bosses need to be wary if they inadvertently breach discrimination rules.
“Probably the best approach for an employer when considering a Christmas bonus is to pay one across the board, or not at all,” Mr Walshe said.
What are the tax implications for an employer when paying employees a bonus at Christmas?
It is really important for employers to remember when planning year-end bonuses or treats that in terms of taxation, reckonable earnings for PRSI purposes includes: salary, wages, fees, commissions, and bonuses.
Barry Cahill from Taxback.com said, “Christmas bonuses paid to employees by their employers, which are to encourage loyalty and productivity, or just to say thank you for all their hard work, are treated as part of employees’ emoluments and are included in their total taxable income for the year”.
Bonus payments are subject to income tax, USC and PRSI at employees’ marginal rate up to 52%.
Ms McElwee highlights the small benefit exemption.
“Where an employer provides an employee with a small benefit, that is, a benefit with a value not exceeding €500, tax, USC and PRSI need not be applied to that benefit.”
Mr Cahill said the main condition to the small benefit exemption is that it must not be in cash and could not be converted in full or partly in cash.
“If the value exceeds €500, the full value of that benefit will be taxed. The small benefit is traditionally given as a voucher.”
Are employers choosing to give employees a Christmas gift instead of a Christmas bonus?
Vouchers are very popular, according to Caroline Reidy, HR Suite, and so too are personalised gifts.
She noted, however, that delivery costs are a consideration given that many employees are working from home.
Gift hampers and gift vouchers are popular options for the Christmas season, similar to last year, said Ms McElwee, and businesses are choosing to purchase them from Irish firms.
“Many companies are keen to issue employees with vouchers for small Irish businesses that have been negatively affected by the pandemic – hotels, craft businesses, restaurants and other firms in the experience economy.
“These businesses need support now more than ever, and employees would have the opportunity to enjoy some of the high-quality offerings from home-grown local businesses,” she said.
Global gifting platform &Open, which recently announced that it’s to create more than 100 jobs in Ireland, has noticed an increase in enquiries for its service after workplaces began to cancel Christmas parties.
Jonathan Legge, CEO, said orders are coming in for food hampers with Irish products such as chocolate, whiskey and cheese.
“Another thing we’ve seen this year that’s proving popular is subscription vouchers for things like Master Class where you can learn about gardening or cooking or presentation skills, as well as mental health subscriptions for apps like Calm,” he said.
Gifts from &Open range in price from €20 to €275 euro, and the company is finding that businesses are more generous when purchasing gifts for employees because of their hard work during the pandemic.
Are there tax implications for giving employees a Christmas gift?
There is no standalone position confirmed by Revenue in respect of Christmas hampers, according to Mr Cahill, Taxback.com, “but the likelihood for most employers and employees is that they would be covered by the small benefit exemption – so long as the value is less than €500 and the exemption hasn’t been used previously in the year”.
Ms McElwee, Ibec, also said there has been a long-standing Revenue practice that seasonal parties will not attract a taxable benefit in kind – as long the expenses are reasonable and available to all employees.
In December last year, Revenue confirmed that a benefit-in-kind will not arise where an employer incurs reasonable costs in hosting a virtual seasonal party for their employees.
“Reasonable costs include costs typically incurred in hosting a face-to-face event. This includes the cost of delivering or providing food and drink to employees in advance of or during the event,” she said.